Karnataka High Court
Chamundi Chemicals And Fertilisers ... vs M.C. Cherian And Others on 12 January, 1993
Equivalent citations: [1993]77COMPCAS1(KAR), ILR1993KAR620, 1993(1)KARLJ412
JUDGMENT Kedambady Jagannatha Shetty, J.
1. This company application is filed by the official liquidator under section 543 of the Companies Act, 1956, against 9 of the former directors of Messrs. Chamundi Chemicals and Fertilisers Ltd. (in liquidation) alleging acts of misfeasance and breach of trust. Respondents Nos. 1 to 8 were the directors of the company during the period noted below :
Respondent No. 1 : From the date of incorporation till the date of winding up order.
Respondent No. 2 : From August 12, 1961, to February 11, 1969.
Respondent No. 3 : From August 12, 1961, to June 22, 1972.
Respondent No. 4 : From March 14, 1962, to October 11, 1968. (as a nominee of the Industrial Finance Corporation, Delhi.) Respondent No. 5 : From September 1, 1968, till the date of winding up order.
Respondent No. 6 : From March 30, 1970, till the date of winding up order.
Respondent No. 7 : From April 21, 1975, till the date of winding up order.
Respondent No. 8 : From July 13, 1976, to the date of winding up order.
2. Respondent No. 9 was managing agent of the company and they ceased to be the managing agents consequent on the abolition of the managing agency system. The first respondent, who was a former director, died on March 23, 1987. Respondents Nos. 5 and 7 are his sons, but no legal representative application was filed to bring them on record as legal representatives of the deceased respondent No. 1. But they were the directors of the company during the period mentioned in the note above.
3. The allegations of the official liquidator against the respondents during the relevant time in which the respondent-company was functioning are :
The company advanced Rs. 1,60,900 in September, 1966, long before the contract was awarded to the Mysore Machinery Manufacturers Limited on September 1, 1967, in which respondent No. 1 was interested. The competence of the said company to execute such a contract was doubtful. Although Messrs. Mysore Machinery Manufacturers Ltd. was awarded the contract on September 1, 1967, the company had been making advances to it from September, 1966, itself. This was first ratified by the board of directors on September 1, 1967, wherein the advance of Rs. 1,60,900 outstanding as on that date was considered as advance made towards fabrication and installation of the plant. The granting of the advance of Rs. 1,60,900 to the above company long before the contract was awarded appears to have been done intentionally by the management of the company and appears to be a loan advanced to the said company without interest. Though no plant was erected in pursuance of the aforesaid contract and the company continued to make advances from September, 1966, onwards, it was first decided by the company to charge interest at 10 per cent. only in the year 1970, vide resolution dated September 29, 1970, on the amount outstanding from January 1, 1970. As a result of this, the company lost a sum of Rs. 1,99,847.50 being interest on the outstanding advance from September, 1966, to December 31, 1969.
4. It is alleged that a sum of Rs. 97,500 was advanced to A. J. George, an employee of the company, for purchase of a motor car in 1965. He gave accounts only for Rs. 57,321. Next year, a further sum of Rs. 9,354 was advanced to him without clearing the previous balance of Rs. 41,918.85. That year, he gave an account for Rs. 3,010 and in 1967 he gave account for Rs. 22,499.85, which included a car valued at Rs. 17,000. He made a claim for Rs. 1,257.63 in 1968, which was settled by the company and a further sum of Rs. 500 was advanced to him. The balance outstanding, viz., Rs. 27,520.66, was written off in 1974 as a bad debt. The company did not make any efforts to recover the amounts originally advanced while granting fresh advance. Respondents Nos. 1 to being the directors and respondent No. 9 being the managing agent of the company during the relevant period are jointly and severally liable to account for the loss of Rs. 27,520.66 suffered by the company on this count.
5. It is alleged that in the year 1967, a sum of Rs. 10,000 was transferred from the account of C. Appu Rao, an employee of the company, to the account of respondent No. 9. But, as on December 31, 1968, the debit balance of Rs. 8,588.33 in the employee's account was written off as a bad debt. This has apparently been done with the intention of wiping off his balance in the books of the company. Respondent Nos. 1 to 5 being the directors and respondent No. 9 being the managing agent of the company during the relevant period are liable to make good the loss.
6. It is alleged that D. Kamesh, a staff member of the company at Bangalore, was entrusted with the work of purchasing raw materials. Huge sums were accordingly transferred to him. A sum of Rs. 25,380.49 was outstanding in his account which was written off as a bad debt in 1970, which is not the actual amount due from him, but from the management. Respondents Nos. 1 to 6 being the directors and respondent No. 9 being the managing agent of the company during the relevant period are liable to make good the loss of Rs. 25,380.49 suffered by the company by writting off the said sum.
7. It is further stated that a sum of Rs. 19,000 was advanced to C. P. Dhawan on March 28, 1966, by letter dated March 24, 1966, by a direction of M. C. Cherian, managing director of the company. This amount continued to remain outstanding till 1974 when it was finally written off as a bad debt. No efforts were made by the company to recover the amount before it was written off. Respondents Nos. 1 to 6 being the directors and respondent No. 9 being the managing agent of the company during the relevant period are liable to make good the loss of Rs. 19,000 suffered by the company on this account.
8. It is further alleged that the company advanced to V. C. Khanna a sum of Rs. 8,000 on May 28, 1978, for purchase of a house constructed by him. Subsequently, the Government cancelled the rights of the vendor over the property and the company decided to write off the said advance as a bad debt, vide resolution dated May 30, 1972. Respondents Nos. 1 to 6 being the directors and respondent No. 9 being the managing agent of the company during the relevant period are liable to make good the said loss.
9. It is alleged that one H. S. Sharma, ex-employee of the company, is stated to have addressed a letter dated August 28, 1978, to the secured creditors (Punjab National Bank) that the piece of land acquired on August 28, 1965, stood registered in the name of one K. T. Cherian, though the cost of land including registration charges were debited to the company's account. No efforts were taken to recover the amount before it was considered to be bad and written off. The company suffered a loss of Rs. 16,033.99 on this account. Respondents Nos. 1 to 4 being the directors and respondent No. 9 being the managing agent of the company at the relevant time are liable to make good the said sum of Rs. 16,039.99.
10. It is alleged that a sum of Rs. 8,500 outstanding in the books of Messrs. Chamundi Curing Works in 1968 against S. V. Rajaratnam, an ex-employee of the company, was transferred to the company. After setting of Rs. 1,140 due to him as bonus for 1966-67, the remaining sum of Rs. 7,360 was written off as ex gratia and travelling expenses. This was done to satisfy queries raised by auditors and lack bona fides. Respondents Nos. 1 to 5 who were the directors and respondent No. 9 being the managing agent of the company at the relevant time when the amount of Rs. 7,360 due from the aforesaid person was written off, are liable to account for the said amount.
11. It is further alleged that the company purchased 15,763.156 M. tons of sulphur during the period from 1964 to 1968. But the actual quantity of sulphur received in the factory of the company was only 15,057.124 M. tons. It is found that the quantity of 706.32 M. tons of sulphur was short-received by the factory causing financial loss to the company.
12. Further, it is submitted by the official liquidator that the respondents are jointly and severally liable to pay the several amounts referred to in paragraphs 8(i) to 8(ix) above, in all aggregating to Rs. 11,58,936.97.
13. In the application, the official liquidator has stated that it appears, the chartered accountant has finalised his report without taking into consideration the clarification given by the ex-director. It is further stated in the application by the official liquidator that in short, the ex-directors stated that the transactions reflected in the respective balance-sheet had been duly approved by the board as well as by the general body, and the statutory auditors had given unqualified reports for all the years and that the management had always acted for the betterment and improvement of the company.
14. Respondents No. 1, 5, 7, 8 and 9 have filed their reply statement/objection statement. It is stated that respondent No. 1 was a director from the time of inception of the company till he resigned on February 15, 1977. Respondent No. 5 was a director of the company from September 1, 1968, till he resigned on February 17, 1977. Respondent No. 7 was a director of the company from April 21, 1975, till resigned on January 24, 1977. Respondent No. 8 was a director of the company from July 13, 1976, till he resigned on January 28, 1977. Respondent No. 9 was the managing agent of the company till it was abolished by the Central Government. The averments in para 5 contrary to the above are not admitted.
15. It is stated that in response to the notice received by the court in the winding up petition, Mr. M. C. Chandy filed an affidavit opposing the winding up order. Respondents Nos. 1, 5, 7 and 8 received a notice dated April 22, 1977, from the official liquidator requiring them to submit the statement of affairs of the company. In reply to the notice, respondent No. 5 has filed the statement of affairs. Mr. M. C. Cherian, respondent No. 1, was in charge of the company (in liquidation). He had a paralytic stroke in July, 1977. As such, he could not file the statement of affairs. For and on behalf of Mr. M. C. Cherian and under his instructions Mr. M. C. Chandy, respondent No. 5, has filed the statement of affairs, though he had ceased to be a director of the company prior to the winding up of the company.
16. In reply to the various allegations in the company application, it is stated by respondents Nos. 1, 5, 7, 8 and 9 that the company decided to install a mixing and granulated plant in August, 1966. Certain advances, therefore, were given to Mysore Machinery Manufacturers Limited (M. M. M. Ltd.) towards initial expenses for fabrication of the proposed plant. M. C. Cherian became the director of the M. M. M. Ltd. only on October 12, 1966. Respondent No. 1, being one of the directors of M. M. M. Ltd., did not participate in the discussions held on September 1, 1967. The order for fabrication of the plant was given by the board of directors of the company. A decision was taken by the managing agents to give advance in August, 1966, itself and the first advance was made on September 21, 1966, even before M. C. Cherian became a director of M. M. M. Ltd. As such, it is stated that it is incorrect to suggest that advances were made by the company to M. M. M. Ltd. as a loan, free of interest. It is stated that since production in the company was stopped in July, 1968, due to heavy accumulation of stocks and slump in the market and for want of funds, the idea of installing the proposed plant was dropped and a decision taken to give up the idea of installing the plant and to recover the advances and to charge 10 per cent. interest on the advances from January 1, 1970, to avoid the risk of forfeiture of the advances by M. M. M. Ltd. for cancellation of the orders. It is further stated that the advances to M. M. M. Ltd. have been treated as an asset of the company in the balance-sheet for the years ending December 31, 1968, to 1973. The accounts of the company have been unanimously approved and passed by the shareholders of the company in general meetings. The entire allegations of the official liquidator in this behalf are baseless. The issue cannot, therefore, be reopened and questioned under section 543 of the Companies Act, 1956.
17. In so far as the advances to A. J. George are concerned, it is stated that the company had engaged A. J. George for liaison work at Delhi at a nominal remuneration of Rs. 100 per month (in addition to actual expenses incurred by him). He was buying motor vehicles for the company also in addition to the liaison work. He was drawing advances from the company periodically for purchase of motor cars as well as towards expenses incurred for the work of the company. The respondents are not in possession of the account books of the company and are, therefore, unable to deal with the matter item-wise. A. J. George has been submitting accounts for the expenses incurred on behalf of the company, in order to meet the exigencies and the company used to give advances to A. J. George in the usual course of business in anticipation of accounts for advances made earlier. Monthly remuneration was paid to George only for 8 years, though he worked for the company for 12 years. As such, the directors were right and justified in writing off the sum of Rs. 27,520.66 keeping in view the services performed by George. In fact, in the usual course of management the board wrote off the above amount. The accounts were also duly audited. The fact of the difference being written off for the year ended December 31, 1974, was disclosed in the balance-sheet by including the same in the total of bad debts written off in that year. The official liquidator is not justified in objecting to the amount of Rs. 27,520.66 due from Mr. A. J. George having been written off in the aforesaid circumstances explained.
18. In controverting the allegations made in para 8(iii) it is stated that respondent No. 5 became a director of the company on September 1, 1968, and as such, he is not responsible for any transactions of the company prior to that date. Respondents Nos. 1 and 9 had stated that C. Appu Rao, being the sales officer of the company, had to travel a lot to promote sales of the products of the company. He was in service of the company for about 8 years. The personal account of C. Appu Rao was credited with a sum of Rs. 10,000 debiting the account of respondent No. 9, who was the managing agent. The corresponding entry exists in the accounts of respondent No. 9. The official liquidator, therefore, cannot question the credit given to an employee for which there is a debit entry in the books of the company. The personal account of C. Appu Rao was credited with a sum of Rs. 10,000 towards the ex gratia payment and a sum of Rs. 6,988.33 towards travelling expenses incurred by him for the work of the company, amounting to Rs. 8,588.33. It is incorrect to say that a sum of Rs. 8,588.33 due from C. Appu Rao was written off. It is false to contend that there is any diversion of funds of the company through account of Mr. C. Appu Rao. The apprehension of the official liquidator in this behalf is baseless. Hence, respondents Nos. 1, 5 and 9 are not liable to pay this amount.
19. It is further stated that respondent No. 5, Mr. Chandy, became a director of the company on September 1, 1968. As such, he is not responsible for the transaction of the company earlier to that date. D. Kamesh was in charge of the office at Bangalore and was making purchases in addition to doing liaison work for the company at Bangalore. A sum of Rs. 61,000 was given by the company to D. Kamesh for making payment to Mysore Machinery Manufacturers Limited towards fabrication of a plant for the company. There were five directors in the company in 1967 whereas there were six directors in M. M. M. Ltd. Out of the above, only one respondent, i.e., M. C. Cherian, was a common director in both the company and M. M. M. Ltd. D. Kamesh died on May 30, 1968, without leaving any assets. There being no chances of recovery of the outstanding sum of Rs. 25,318, the directors were justified in writing off the same. Though respondent No. 5 by his letter dated September 20, 1980, had clarified this point to the official liquidator, the official liquidator entirely ignored the clarification. The account has been duly audited and the explanations called for by the auditors was given and the sum was included in the amounts to be written off. The general body passed the accounts unanimously. Respondents Nos. 1, 5 and 9 are not liable to pay the amount.
20. In so far as the advance given to Mr. Dhawan is concerned, it is stated that respondent No. 5 is not responsible for any transactions of the company prior to the date September 1, 1968, on which date he became the director of the company. A sum of Rs. 19,000 was paid to C. P. Dhawan as advance for supply of a pulverisor in 1966. He is not related to any of the directors. The company stopped production in July, 1968, and as such did not require the machine. In 1974, the directors decided to write off the said amount advanced to C. P. Dhawan, as taking delivery of the machine required further investments which the company could not afford till the factory of the company restarted. Therefore, the board of directors were justified in writing off this amount. This amount was included in the accounts written off for the year ended 1974, duly audited and the auditors obtaining the explanations included the same in the audited report to be written off and that was placed before the general body which passed the accounts as audited by the chartered accounts of the company. Respondents Nos. 1, 5 and 9 are not liable to pay that amount.
21. In so far as the advance of Rs. 8,000 to V. C. Khanna is concerned, it is stated that a sum of Rs. 8,000 was advanced to V. C. Khanna for the house built by him at the site belonging to Thungabadra Dam, as it was found ideal to use it as a guest house of the company. But, unfortunately, the Government rejected the company's application for transfer of the site. V. C. Khanna did not agree to return the amount advanced to him, which was consequently written off by the directors. The written off sum was included in the amount to be written off as bad debts for the year ending 1972 and the accounts were duly passed at the annual general body meeting. Respondents Nos. 1, 5 and 9 are not liable to make good the alleged loss and they are in no way personally interested in the transaction.
22. Respondents Nos. 1 and 9 submit that the land bearing S. No. 93 is adjacent to the factory at Munirabad, which has a residential building over it, and has all along been used as residence by the staff and officers of the company from the date of purchase, i.e., 1965. It belonged to K. T. Cherian, assistant manager, who was paid Rs. 16,030 for purchasing the premises. The company has acquired title to the property in question by adverse possession. The advance for the purchase of the property is shown in the books of the company under the heading "land account". The property was not shown in the statement of affairs of the company, but the advance made to K. T. Cherian for the purchase of land is included in the "land account" in the statement of affairs. This position was clarified by respondent No. 5 by his letter dated September 20, 1980, to the official liquidator. The land in question has been included in the value of total land held by the company at the time of filing the statement of affairs. The value of the property in question has very much appreciated. It is false to contend that respondents Nos. 1 and 9 misappropriated the funds of the company.
23. The allegations contained in para 8(viii) are untenable and false. It is stated that S. V. Rajaratnam was working as a fertilizer sales officer in Coorg and Mysore Coffee Company Limited for about 10 years before he was employed by the company. There was a debit balance of Rs. 7,360 in the books of the company consequent to transfer from Coorg Mysore Coffee Company Limited on January 31, 1968. The services of Rajaratnam were terminated prematurely when the depot was closed. At the time of closing the depot, Rs. 2,360 was adjusted against travelling allowance and Rs. 5,000 was adjusted towards ex gratia payment by the company to Rajaratnam due to premature termination. It is not correct to say that the sum of Rs. 8,500 was transferred from Coorg Mysore Coffee Company Limited to this company, and that respondents Nos. 1, 5 and 9 are liable to account for the said amount.
24. The shortage referred to in para 8(ix) pertains to the period 1964 to 1968. Respondent No. 5 became the director of the company only on September 1, 1968, and as such he is not responsible for any transaction that look place prior to that date. Respondents Nos. 1 and 9 submit that in response to the clarification sought by the official liquidator, respondent No. 5 submitted the clarifications. There is no shortage of sulphur. The special auditor appointed by the court has not taken into account the purchase and receipts of sulphur during 1963, sale of sulphur of 1,104 tonnes at Bombay in 1965 by the company and sale of 451 tonnes of sulphur in 1974 by the Punjab National Bank at Bombay. Taking this into account, the respondent submits that there is an excess of 606.088 tonnes of sulphur. It is further stated that all the transactions of the company including those referred to in the application have been approved by the board of directors of the company and have been adopted by the shareholders of the company. Due to change in the import policy of the Central Government, permitting import of large quantities of complex fertilisers, viz., diammonium phosphate, and due to its production by large public and private undertakings in the country, the demand for superphosphate declined steeply all of a sudden. Hence, the company could not sell its products profitably and consequently the production had to be stopped in 1968. It is pertinent to mention that most of the factories manufacturing superphosphate stopped production at the relevant time. The directors of the company, viz., M. C. Cherian, M. C. Chandy and M. C. George, were mainly responsible for bringing in monies to an extent of about Rs. 4 lakhs from their personal sources and relatives for maintaining the staff and machinery of the company, in the hope of re-starting the factory. If the details which are given in the account, had been properly checked, the official liquidator would not have come to the conclusion that there was a shortage of 706.032 tonnes of sulphur.
25. It is further denied that these respondents have committed acts of misfeasance, breach of trust, diverted the funds of the company (under liquidation), no efforts were made to recover the amounts due to the company, misappropriated the funds of the company (under liquidation), amounts were written off to satisfy the queries raised by auditors, and the action taken by the directors lack bona fides and that they are liable to account for the loss suffered by the company (under liquidation), etc., as contended by the official liquidator in the application.
26. It is emphatically denied that the company has suffered any loss much less Rs. 11,58,936.97 as claimed in the petition due to any acts of the directors.
27. It is further stated that the present application is doubtless mala fide, because the then official liquidator had illegally and without justification brought to sale many essential parts and spare parts for scrap value and had filed the present application without even caring to take into consideration the clarifications given by respondent No. 5.
28. Mr. Rangarajan, senior counsel appearing for the respondents, has contended that the application is liable to be rejected in limine for more than one reason. Firstly, that the application under section 543 is a misconceived as the pleadings as to misfeasance and breach of trust by the respondents/former directors of the company are vague and imprecise. That there are no specific charges of misfeasance or misfeasance amounting to breach of trust by the individual directors. That respondent No. 1 died on March 23, 1987, and there was no declaration as to the misfeasance committed by him, as such his legal representatives, respondent No. 5 and respondent No. 7, who are already on record cannot be held to be liable for any act of misfeasance, if any, by respondent No. 1. He further argued that none of the allegations do go to establish, or even prima facie establish, that the respondents-former directors were liable for misfeasance or breach of trust, and, thirdly, to account for the alleged loss by way of compensation.
29. Learned counsel appearing for the official liquidator has submitted that the company court has no jurisdiction to reject the application without holding a full dressed enquiry by taking evidence and the enquiry should be conducted in accordance with section 543 of the Act. The proceedings under section 543 against the delinquent director will not abate after his death. He has further argued that there is sufficient material to prove the charge made against the delinquent directors as per the report of the chartered accountant.
30. In view of the pleadings and contentions of the parties the following questions arise to be answered by this court.
(1) Whether the proceedings initiated against a director under section 543 of the Companies Act would come to an automatic termination on the death of the director, in any event whether the court has jurisdiction to continue the proceedings against the legal representatives of the deceased director ?
(2) Whether the court has inherent power to reject the application under section 543 of the Act in limine or it is bound to hold a regular enquiry on the application filed under section 543 of the Act ?
(3) Whether the official liquidator has made out a case to foist liability on respondents Nos. 1 to 9 for the alleged loss that may have been caused by the company in liquidation ?
31. Point No. 1 : It is not disputed that respondent No. 1, the former director of the company (in liquidation), died on March 23, 1987. The company was wound up by the order of this court on February 18, 1987. The company application under section 543 was filed on July 31, 1981, and till October 9, 1987, steps were being taken to serve notice to the respondents. Though respondent No. 1 died during interregnum period of taking steps to service notice on other respondents and subsequently the case was fixed for hearing on November 20, 1987, no step was taken to bring the legal representatives of the deceased respondent No. 1, but it was stated that respondent No. 5 and respondent No. 7 are the sons of the deceased respondent No. 1 and they are already on recording being former directors of the company. It is relevant to note that there is no order to treat respondent No. 5 to respondent No. 7 as the legal representatives of respondent No. 1 since no steps were taken to treat them as legal representatives of the deceased respondent No. 1. These respondents Nos. 5 and 7 are, therefore, not representing the deceased respondents Nos. 1 but they are parties respondents being former directors of the company during the relevant period.
32. Learned counsel, Mr. Rangarajan, contended that on the death of a director, the misfeasance proceedings against him automatically gets terminated. Further, he argued, that the misfeasance proceedings cannot be continued against the legal representatives of the deceased director for the personal conduct can be defended only by the person against whom the charge of misfeasance or breach of trust are levelled. In support of his submissions, learned counsel relied on the decision of this court in Official Liquidator v. Maganlal Hirachand Shah [1980] 50 Comp Cas 762 (Kar) and Mrs. Joselin v. Official Liquidator, Always Chit Funds (P.) Ltd. [1979] 49 Comp Cas 170 (Ker).
33. This court, in the above referred first case, observed that (at page 768) :
"It is unnecessary to go into the reasons why misfeasance proceedings cannot be continued against the legal representatives of a deceased director particularly in cases where no declaration against the director has been made by the court in which the proceedings have been initiated, for the obvious reason that the language of section 543 of the Act or section 542 of the Act clearly indicates that what is impeachable under those sections is the personal conduct of the director or other person who had been responsible for causing loss to the company in the course of participating in the business and management of the company. This personal conduct can only be defended by such person with the facts and knowledge that he possesses and it cannot be defended by others who are ignorant of anything that the deceased director might or might not have done in the course of such management and business of the company. Therefore, legal representatives can never be stated to be in a position to defend, no matter how detailed or elaborate the pleadings of misfeasance on the part of a director or other person may be, in proceedings under section 542 or 543 of the Act. They will be placed in a very difficult position if they are exposed to defend the action of somebody about which they might not have knowledge at all."
34. The Division Bench of the Kerala High Court in the second case held that (headnote) :
"The three directors had died at an early stage of the proceedings before the company court. They had not been examined in the misfeasance proceedings nor had they an opportunity to place before the company court any evidence in support of their contentions prior to their death. Therefore, it would not be just, fair or equitable to continue the misfeasance proceedings against the appellants, who were the legal representatives of the three directors."
35. The misfeasance charged against a director is a serious charge in a proceeding contemplated under section 543 of the Act and it involves an inquiry into the personal conduct of persons acting in capacities mentioned therein. It was contended by the respondent's counsel that the maxim actio personalis moritur cum persona is applicable in respect of the proceedings initiated against a delinquent director under section 543 of the Act and the proceedings initiated against the director under section 543 of the Act would cease on the death of director, by reason of the operation of the maxim that personal action will not survive the death of a wrongdoer.
36. Keeping in view the decision of this court referred to above, I am of the view that a misfeasance proceeding against directors contemplated under section 543 of the Act involving inquiry into personal conduct, misfeasance or breach of conduct, would certainly attract the application of the maximum actio personalis moritur cum persona (the personal action will not survive the death of the wrongdoer). The contention of counsel for the official liquidator that the proceedings under section 543 against the delinquent director will not abate after his death, is unacceptable and the same is rejected. The other contention of the official liquidator that the court has jurisdiction to continue the proceedings against the legal representatives of the deceased director is equally not acceptable. In the instant case, respondents Nos. 5 and 7, though they are the sons of respondent No. 1, have not been brought on record as legal representatives. Even otherwise, in view of the decision of the High Court misfeasance proceedings cannot be continued against the legal representatives of a deceased director for the obvious reason that the language of section 543 or section 542 indicates that what is impeachable is the personal conduct of the director or other person who had been responsible for causing loss to the company. The personal conduct can be defended by a person against whom the allegations are made, for he is the person who possesses the facts and knowledge about his action in the course of such management and business of the company. That apart, it is relevant to note that no declaration has been made as to be liability of respondent No. 1 when he was alive. It is to be noted that the proceedings initiated against the director did not culminate in a judge of this court which proceeded against the legal representatives of the deceased director. In the instant case, respondent No. 1 died at an early stage of the proceedings. He had not been examined in misfeasance proceedings nor was any material placed before this court in evidence in support of his contention prior to his death. Therefore, it would not be just, fair and equitable to continue the misfeasance proceedings against the legal representatives of the deceased director. Further, it is to be noted that the legal representatives of respondent No. 1 have not been brought on record representing the deceased respondent No. 1.
37. Point No. 2. - The misfeasance proceeding is no doubt a proceeding of civil nature but it gives rise to the liability of a director for his misconduct which is of a quasi-criminal nature and a serious one. Section 543 provides relief by a summary procedure to assess the delinquent directors liability. Thus, misfeasance proceedings in the course of winding up of a company are independent, whether or not the person proceeded against may be criminally liable for any offence disclosed by the facts of the case and for assessing the civil liability under section 543 of the Act. Counsel for the official liquidator has referred to rules 260 to 262 and contended that the court should conduct an enquiry by taking evidence, and it cannot reject the judges summons on a prima facie finding that there was no case made out to proceed with the enquiry. Learned counsel for the respondents submitted that the court has inherent power to reject the application under section 543 of the Act, if it finds that the allegations made against the delinquent even if taken at face value did not constitute the misconduct of misfeasance or malfunction.
38. It is apparent that under rule 260 when an application is made under section 542 or 543, it shall be in the form of summons returnable in the first instance in chambers. The summons so issued shall state the nature of the declaration or order for which an application is made and the grant of the application and it shall be served on every person against whom an order is sought under rule 261, it provides that on return of the summons, the court may give such directions as it shall think fit, as to whether points of claims and defence are to be delivered, as to the taking of evidence wholly or partly by affidavit or orally. It further provides that the procedure is of summary nature and for the hearing thereof. The preliminary hearing after return of summons does not mean that the court has not to apply its mind to prima facie satisfy itself about the merit of the application. The language of section 543 read with rule 261 is manifestly clear about the discretion resting with the court in granting an application. The word "as it thinks fit" occurring in rule 261 makes it clear and points out that directions could be given by the court on preliminary hearing if it thinks fit to do so, not otherwise. Thus, on the basis of the Act and Rules, it is not compulsory for the court to give directions as to whether points of claims or defence are to be delivered or as to the taking of evidence. The court has in its inherent power under rule 9 of the Companies (Court) Rules, which reads as follows :
"9. Inherent powers of court. - Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent the abuse of the process of the court."
39. ample power to reject the application without resorting to the directions as to the points of claims under section 543 of the Act, in order to secure the ends of justice.
40. It is a well laid principle of law that any proceeding against a delinquent director can be quashed in the initial stage if on the face of the complaint (application) no misconduct, viz., misfeasance or breach of trust is constituted. In other words, the test is that taking the allegations in the complaint/application as they are, if no misconduct is made out then the company court will be justified in quashing the proceedings in exercise of its inherent power.
Point No. 3. - It is relevant to analyse section 543 of the Act. It enumerates the powers of the court to assess damages against the delinquent directors mulcting them with the damages for not acting reasonably and thus committing the company to unnecessary loss. The proceedings, however, do not extend to any and every kind of claims which the company may have against the delinquent directors. It is confined to claims relating to misfeasance or breach of trust in respect of their duties in relation to the company. Thus, it is only misfeasance which includes breach of duty, breach of trust resulting in loss to the company which will come within the purview of section 543 of the Act. Mere negligence or neglect of duty will not by itself create liability unless there was gross negligence amounting to misfeasance or breach of duty resulting in loss to the company.
41. In the decision of the Madras High Court in Official Liquidator, Madras Oils and Fertilizers P. Ltd. v. G. Shanmugham [1979] 49 Comp Cas 903, it is observed thus (at page 906) :
"Section 543 of the Companies Act which enumerates the power of court to assess damages against the delinquent directors has set down certain norms for the exercise of such power resulting in mulcting the ex-officers, may be directors, with damages for not acting reasonably and thus committing the company to unnecessary loss. The vein that runs through the intendment of section 543 of the Companies Act appears to be that there should be prima facie proof of such negligence bordering on misfeasance and breach of trust which alone was generally the basis for invocation of the punitive rule contained in section 543 of the Companies Act. No doubt, section 543(1)(a) and section 543(1)(b) create as between themselves a dichotomy in the matter of exercise of the power of the court in such matters. As per clause (a) of sub-section (1) of section 543 of the Act, such a power to assess the damages could be invoked in case of misapplication and retention of monies or property of the company and on a fair and reasonable conclusion by the court that the officers of the company are liable or accountable for the same. The court can then exercise its jurisdiction and assess the damages against the delinquent director or officer. Clause (b) of sub-section (1) of section 543 of the Act, however, lays down a specific hypothesis for the invocation of the power and for the exercise of it. It contemplates that the delinquent director should be found to be guilty of misfeasance or breach of trust in relation to the company. Therefore, clause (b) deals with a particular situation, wherein it should appear to the court, whether on the application of the liquidator or any creditor or contributory, that the company whilst it was functioning acted through a body know as the directors or the officers who are guilty of appropriation without authority of the funds of the company. It may ultimately be a case wherein there was misappropriation also resulting in the breach of that faith which the shareholders and the creditors outside the domestic chamber of activity of a company place in the body of directors or officers in charge of the affairs of the company."
42. Thus, it enables the court on an application by the official liquidator or any other creditor or contributory to examine the conduct of the delinquent directors or officers of the company. The court examines the conduct to see if they were guilty of any misfeasance or other breach of duty to the company. If the court so finds, it can order the delinquent directors or officers to repay or restore the assets of the company or such sum as the court thinks just.
43. It is contended by the respondents' counsel that as per the statement contained in the application by the official liquidator all the transactions reflected in the respective balance-sheet had been duly approved by the board as well as the general body, and the auditors had give unqualified reports. That being so, the shareholders in the company had no objection to or even authorised the conduct which the liquidator is now complaining of as a breach of duty. As such, when the shareholders have unanimously approved of the acts of directors, it cannot be complained by the liquidator that their acts constituted negligence and are liable to make good the loss. In the decision in Multinational Gas and Petrochemical Co. v. Multinational Gas and Petrochemical Services Ltd. [1983] 1 Ch 258, it was held thus (at page 586 of [1983] 2 All ER) :
"If the company is bound by what was done, when it was a going concern, then the liquidator is in no better position. He cannot sue the members because they owed no duty to the company as a separate entity and he cannot sue the directors because the decisions which he seeks to impugn were made by, and with full assent of the members."
44. In the above case, the shareholders unanimously approved of the acts of the directors which the liquidator later complained constituted negligence. In such a situation, it has been held that the company could not complain of acts to which it had itself agreed. And since the company could not complain neither could the liquidator on behalf of the creditor. This approach will have to be accepted, for the creditor originally has no action in part against a debtor for negligent misuse by the debtor of his assets. This is true, in my opinion, so far as an individual debtor in concerned; if the debtor is a company the directors owe a duty to the company which has no counterpart in the case of an individual debtor. In the above Multinational's case [1983] 1 Ch 258, it is manifest that the shareholders' consent can deprive the creditors of a remedy in respect of a breach of duty by the directors. Learned counsel for the official liquidator brought to my notice the subsequent decision of the Court of Appeal, viz., West Mercia Safety Wear Ltd. v. Dodd [1987] Times 24 (CA), which has explained that the Multinational Gas rule applies only where the company was solvent at the time of breach of duty. I am in full agreement with this view, that is to say, if the company is solvent, the shareholders' consent can deprive the creditors of a remedy in respect of breach of duty of the directors. If the company was not solvent at the time, then the duty of the directors to the company is principally to consider the creditors' interest, since it is their money which is now at risk, rather than the shareholders.
45. In the instant case, the acts of the directors, which have the consent of shareholders, were all a time when the company was not insolvent. The act of the directors complained of by the liquidator were all of periods between the year 1961 up to date of the winding up. The transactions which have been made and the decisions taken by the board and the general body approving the various acts and deeds of directors were all at the relevant periods prior to the winding up of the company. The chartered accountants' report, annexure A, relied upon by the liquidator alleging the misfeasance against the directors, does not indicate that the company was not solvent at the time of the alleged breach of duty by the directors. I am of the view that since the shareholders have no objection to, and even authorised the conduct of the directors during the relevant periods, when the company was not insolvent, the liquidator cannot now complain that the conduct of the directors constituted negligence amounting to misfeasance including breach of trust.
46. However, the official liquidator relying on the report of the chartered accountant, annexure A, has strenuously argued that the directors are liable to account for the loss caused to the company. In the application he has enumerated the various acts of ex-directors of the company, respondents Nos. 1 to 9 at para 8(i) to 8(viii) and 8(ix), claiming that the directors are liable to repay the sum of Rs. 11,58,936.97. The respondents have delivered their defence and submitted that no case much less a prima facie case is made out by the liquidator. I have perused the records and the material placed by the parties and heard them on each point of allegation of misfeasance, breach of trust made against the ex-directors, respondents Nos. 1 to 9. The liquidator can no doubt succeed in making issuance of the prayer in the summons only if he establishes that respondents Nos. 1 to 9 as ex-directors (quondam directors) of the company have become liable or accountable for the money which was due to the company. This is not a case where monies have been misappropriated or monies have been retained by the respondents/directors. It is a well laid principle of law that in order to make the directors personally liable under section 543 for misfeasance, it is necessary to show that the directors have dishonestly acted or abstained from acting, in conflict with their plain duty, and that by reason of the act of directors the company has incurred loss.
47. Now, I will take up each allegation contained in the application filed by the liquidator. The liquidator on the basis of the report of the chartered accountant at para 8(i) has stated that the Mysore Machinery was awarded the contract on September 1, 1967, and advances have been made and that was ratified by the board. An advance of Rs. 1,60,900 was made for fabrication of machinery on September 1, 1967. Later, when the plant was not erected, the company decided to charge interest at 10 per cent. on the amount outstanding from January 1, 1970, by a resolution of the company. As a result, the company has lost a sum of Rs. 1,99,847.50. The respondents have stated in their defence that it was wrong on the part of the liquidator to suggest that advances were made by the company M. M. M. Ltd. as a loan. Since the idea of installation of the proposed plant was dropped due to stoppage of production the board took a decision to charge 10 per cent. interest on the advances from January 1, 1970, to avoid the risk of forfeiture of the advances by M. M. M. Ltd., for cancellation of the orders. The accounts of the company have been unanimously approved and passed by the shareholders of the company in general meeting. In the accounts of the company the advances were shown as the assets of the company. The official liquidator's case is that they ought to have charged interest from the date of advance, failure to do so amounts to negligence on the part of the director. The peculiar facts of the case that since the company did not want the machinery to be installed by the M. M. M. Ltd., and there is likelihood of forfeiture of the advance money for breach of contract, a decision was taken to treat it as a loan and charge interest at 10 per cent. which is a commercial decision by the board of directors which later came to be approved by the shareholders in the general body meeting. As already pointed out when once the conduct of the directors is authorised and approved by the shareholders, it cannot be complained of by the official liquidator or any contributory under section 543 of the Act. That apart, there is no nexus between the accountability which is claimed by the official liquidator and any personal act on the part of the respondents-directors.
48. In para 8(ii) of the application, the claim is made to the effect that an employee A. J. George was advanced a sum of Rs. 97,500 for the purchase of a motor car during the year 1965. He gave an account only for Rs. 57,321. Subsequently there were some more advances to him and later, he gave an account for Rs. 22,499.85 which included the value of the car at Rs. 17,000. In the year, it seems the said George claimed a sum of Rs. 1,257.63 which was settled by the company. It is further stated that a sum of Rs. 27,520.66 was outstanding from him, which was written off in the year 1974, by the company. It is alleged that the company did not make any efforts to recover the amounts, and thereby respondents Nos. 1 to 6 and respondent No. 9 who were the directors at the relevant time are liable to account. The respondents in their defence have stated that Mr. A. J. George was employed to do liaison work to the company and his remuneration was paid only for 8 years, though he worked for the company for more than 12 years. The directors were, therefore, writing off the sum of Rs. 27,520.66 keeping in view the services rendered by Mr. George. Further, it is maintained by the respondents that the board, as well as the general body approved the writing off of the said amount. It is to be noted that there is no specific charge against any individual director, but allegations of negligence have been made en masse against all the directors, respondent No. 1 to respondent No. 6 and respondent No. 9. Unless there are specific allegations against the individual director of negligence or misfeasance and he is actually responsible, I do not think that the official liquidator could proceed against the directors for misfeasance or breach of trust resulting in the alleged loss caused to the company. As noticed above, the action/conduct of the directors was authorised and approved by the board and the general body.
49. I now turn to consider the statement made in para 8(iii) of the claim application by the official liquidator. I do not think that the official liquidator has made out any case of misfeasance or breach of trust, much less any prima facie case against the directors under section 543 of the Act. It is alleged that in 1967 a sum of Rs. 10,000 was transferred from the account of C. Appu Rao, the sales officer of the company to the account of respondent No. 9 (Associated Planters). As on December 31, 1968, the debit balance of Rs. 8,588.83 in the employees' account was written off, which is stated to have been done at the instance of the directors. It is stated that this has apparently been done as per the decision of the directors, and the directors respondents Nos. 1 to 5 and 9 are liable to make good the loss. This has been controverted by the respondents in their defence, to the effect that a bald allegation has been made "that it is apprehended that the management was diverting the funds of the company", and there is no specific allegation against any of the directors as to diverting of funds for his own benefit or to misappropriation of the fund. It is stated that the personal account of C. Appu Rao, the sales officer was credited in a sum of Rs. 10,000 by debiting the account of respondent No. 9 (the Associated Planters Private Ltd.), who were the managing agents. The corresponding entry exists in the accounts of respondent No. 9, and as such, the official liquidator cannot question the credit given to an employee for which there is an entry in the books of the company. It is further pointed out that the personal account of C. Appu Rao was credited by a sum of Rs. 10,000 towards ex gratia payment and a sum of Rs. 8,588.33 towards travelling allowance incurred by him for the work of the company. It is, therefore, submitted that it was incorrect to state that a sum of Rs. 8,588.33 due from C. Appu Rao was written off. It is argued by the respondents' counsel that the official liquidator has not alleged that there was any fraudulent transfer of the amount from the account of the employee for the personal gain of the directors. I do find that in the statement of claims referred to in para 8(iii) the allegations made do not constitute misfeasance, much less breach of trust by the respondents-directors of the company. The liquidator has, in fact, stated in his statement of allegations which is based on the chartered accountants' report - annexure A - that the chartered accountant has finalised the report without taking into consideration the clarifications given by the ex-directors.
50. In para 8(iv) it is alleged that a sum of Rs. 25,380.49 from the account of Sri D. Kamesh, a staff member of the company was outstanding to the Mysore Machineries Ltd., and the same was written off in the year 1970. No efforts were made by the management to recover it from the said staff member. It is apprehended that the sum shown as due is not actually the amount due from the staff member, but from the management. In the defence, it is stated that respondent No. 5, M. C. Chandy became the director of the company on September 1, 1968. He has nothing to do with the transaction. The said D. Kamesh was in charge of the office at Bangalore entrusted with the file making purchases in addition to liaison work. The company gave an advance of Rs. 61,000 to D. Kamesh for making payment to M. M. M. Ltd., for fabrication of a plant. He died on May 30, 1968, leaving no assets. As such, there being no chance of recovery of the outstanding sum of Rs. 25,318, the directors were justified in writing off the same. The gist of the charge against the directors is that they did not make any attempt to recover the amount due from D. Kamesh. The fact remains that D. Kamesh left behind no assets, and in that situation, the management was left with no other course, except to writ off the debt. The management's decision to write off the amount in the circumstances is in the interest of the company and it cannot be construed as breach of duty. Moreover, these allegations do not amount to the directors have committed any breach of duty or omitted to do anything which it would be wrongful (sic).
51. Likewise in para 8(v) it is alleged that to one Sri C. P. Dhawan a certain sum was advanced for supply of machinery. No details are available on the dealings of that person with the company, but the said amount was written off by the management as a bad debt. No efforts were made to recover the amounts, and as such, the directors respondent No. 1 to respondent No. 6 are liable. In the defence, it is stated that the amount was paid to Dhawan as advance for the supply of a pulveriser. The company stopped production, and as such it did not require the machinery and the directors decided in the year 1974 to write off the said amount advanced to Dhawan as taking delivery of the machinery required further investment. It is further submitted by the respondents' counsel that the decision to write off the amount was taken by the board and the same was approved by the shareholders. Here, the charge is that a wrong decision is taken in writing off the advance amount given to the supplier of the machine. But there is no charge that the directors misapplied the funds for their personal benefit. It is a sound commercial judgment taken by the director in the interest of the company. It is relevant to note that there is no specific charge against any individual director; moreover the allegations are vague and lack particulars of the alleged wrongful acts and omissions.
52. In para 8(vi) it is alleged that a sum of Rs. 8,000 was paid to V. C. Khanna on May 28, 1966, as advance to purchase a house, that later on the contract was cancelled and the amount advanced was not recovered but written off as a bad debt, whereby respondents Nos. 1 to 6 and 9 are liable for the loss. In reply to this claim, the respondents in their defence statement have stated that the amount was advanced to V. C. Khanna for the house built by him which was found to be ideal for use a guest house of the company. Since the Government refused to transfer the site to the company, V. C. Khanna refused to return the amount despite the best efforts put in by the management. Ultimately, it was treated as a bad debt and written off. It is submitted by counsel for the respondents that it may be a bad decision, but that does not amount to misfeasance or malfeasance by the director. In this, the liquidator's charge is that the amount due was not recovered by the management, and as such, the directors are liable to refund the said sum to the company. As noted, even in this allegation there is no specific charge against the individual directors. I am not view that the charge is not sustainable either on law or on facts.
53. In para 8(vii) it is alleged that the ex-employee, H. S. Sharma, had alleged in his letter that the land acquired by the company was registered in the name of Sri K. T. Cherian, the cost of the land and registration was debited to the company account, but the said land did not find mention in the statement of affairs filed by respondent No. 5 with the official liquidator. The respondents in their defence have stated that the land on which the residential building is situated is close to the factory and has all along been used as residence by the staff of the company from the date of purchase. It belonged to K. T. Cherian and the advance paid to him by the company has been shown in the books of the company. This position was clarified by respondent No. 5 by his letter dated September 20, 1980, to the official liquidator, pointing out that the land in question had been included in the value of land held by the company at the time of filing the statement showing in the "land account". The allegation is that respondent No. 5 has not included the cost of that land in the statement of affairs filed before the official liquidator. Had the official liquidator looked into the clarification issued by the respondents to certain questions, which in fact even the chartered accountant did not, there would not have been those allegations referred in para 8(viii). It is obvious, and to my mind it appears that the allegations are devoid of any charge of misfeasance or breach of trust against the directors.
54. In para 8(vii) it is alleged that a sum of Rs. 8,500 outstanding in the books of Messrs. Chamundi Curing Works in 1968 against Rajaratnam, an ex-employee of the company was transferred to the company. After setting off the amount due to him as bonus for the year 1966-67 the balance amount of Rs. 7,360 was written off as ex gratia and travelling expenses. It is stated that it was done to satisfy the queries raised by the auditors and there is lack of bona fides on the part of the directors. In reply, it is controverted by the respondents stating that Rajaratnam was working as a Fertilizer Sales Officer in Coorg Mysore Coffee Company Ltd., for about 10 years before he was employed by the company. There was a debit balance of Rs. 7,360 in the books of the company consequent to the transfer from Coorg Mysore Coffee Company Ltd., on January 31, 1968. The services of Rajaratnam were terminated prematurely when the depot was closed. At the time of closing the depot Rs. 2,360 was adjusted against travelling allowances and Rs. 5,000 was adjusted towards ex gratia payment by the company to Rajaratnam due to premature termination. It is denied that a sum of Rs. 8,500 was transferred from the Coorg Mysore Coffee Company Ltd., to this company. The case put forward by the official liquidator is that the writing off of the balance amount as ex gratia and travelling allowance of the ex-employee was done to satisfy the queries raised by auditors and lacks bona fides. It is argued by the respondents' counsel that there is no allegation or charge that the directors have misapplied or wrongly retained the amount. Except alleging that the writing off of the balance amount as ex gratia payment to the employee for his travelling expenses, was to satisfy the auditors' query, no material particulars have been given to show how the action of the directors was not bona fide. This is not a case to retention of the money in the hands of the director causing loss to the company. I am, therefore, unable to hold that this allegation even taken as true, establishes that the directors have committed any breach of trust or misfeasance. I am also of the view that since the writing off of the balance as ex gratia payment of travelling expenses of employee has been approved by the board and the general body, under no stretch imagination, the action of the directors could be construed either as dishonest or in conflict with their plain duty, and that by reason of such acts of the directors the company has incurred the alleged loss.
55. Lastly, I turn to the allegation contained in para 8(ix) of the claim statement of the liquidator. It is alleged that the company purchased 15,763.156 tonnes of sulphur during the period from 1964 to 1968. But the actual quantity of sulphur received in the factory of the company was only 15,057.124 tonnes. As such, it is stated there was a deficit of 706.32 tonnes of sulphur in the factory causing financial loss to the company to the tune of Rs. 8,47,200. In defence, the respondents have stated that during the relevant period respondent No. 5 was not the director of the company. He became the director of the company only on September 1, 1968. As such, he is no way responsible for the transaction that took place prior to that date. It is further stated that to the liquidator's queries the clarification has been issued by respondent No. 5 through letter, dated September 20, 1983, stating that there is no shortage of sulphur. It is also stated that the special auditor appointed by the court has not taken into account the purchases and receipts of sulphur during 1963, sale of sulphur of 1,104 tonnes at Bombay in 1965 by the company and sale of 451 tonnes of sulphur in 1974 by Punjab National Bank at Bombay. If this was taken into account, the special auditor as well as the liquidator would not have made the allegation. In fact, there was an excess of 606.088 tonnes of sulphur. The allegation in the claim statement is that a quantity of 706.32 tonnes of sulphur was short-received by the company in the years 1964 to 1968 causing financial loss to the company. It is pointed out by the respondents that in response to clarification sought for by the liquidator in this regard, it was clarified by respondent No. 5, director, that there was no shortage of sulphur. It was pointed out that the sale of sulphur effected during 1963 and in 1965, had it been taken into account would reveal that there is excess of 606.088 tonnes of sulphur. It is relevant to mention here that the liquidator has in fact stated in his claim statement at para 7 that the allegation is based on the chartered accountant's report, annexure A, which has not taken into consideration the clarification given by the directors. It is further pointed out by the respondents that all the transactions have been approved by the board of directors of the company which have been approved by the shareholders of the company. Respondents' counsel has further pointed out that when the company stopped production in the year 1968, the directors of the company, viz., M. C. Cherian, M. C. Chandy and M. C. George were mainly responsible for bringing money to an extent of about Rs. 4 lakhs from their personal sources for maintaining the staff and machinery of the company, in the hope of restarting the company. I am in agreement with the submission made by the respondents' counsel that the allegation is vague and speculative. Had the liquidator taken into consideration the clarification issued by the directors and referred to the books of account, which would reveal the truth of sale of sulphur effected by the company, in the years 1963 and 1965, he would not have levelled the charge against the directors of causing loss to the company.
56. Lastly, counsel for the official liquidator contended that the series of acts and omissions alleged in the claim statement go to show that the directors were negligent in their duty of caring for the company. A claim based on common law negligence or an ordinary claim of damages for mere negligence, is not a claim for misfeasance. It is only gross negligence which amounts to misfeasance. The phrase gross negligence amounting to misfeasance was what is often called "recklessness". In the case of Lagunas Nitrate Co. v. Lagunas Syndicate [1899] 2 Ch. 392, Lindley M.R. said :
"The amount of care to be taken is difficult to define, but it is plain that directors are not liable for all the mistakes they may make, although if they had taken more care they might have avoided them ... Their negligence must not be the omission to take all possible care, it must be much more blamable than that; it must be in a business sense culpable or gross."
57. In this case, however, the "recklessness" which is conduct nearly approaching fraud is not alleged against the respondents-directors.
58. I am, therefore, unable to hold that respondents Nos. 1 to 9, the directors of the company in this case have misapplied the applicants' amount and that, therefore, they are liable to account. There is no case as to any breach of trust committed by any of the directors in relation to the company and it is not suggested that any money of the company has been misappropriated by the directors or that any duty was imposed on the directors by the company in respect of which the directors have committed a breach. In any event, the loss alleged to have been sustained by the company appears to be rather speculative than real and too remote, that it cannot be said that the company has sustained loss as a direct consequence.
59. I, therefore, hold that respondents Nos. 1 to 9, the directors, are not liable for any misfeasance or misapplication or breach of trust under section 543 of the Companies Act. The judge's summons, therefore, fails and is dismissed.
60. In the result, the prayers (a), (b), (c), (d), (e) and (f) are rejected. No order as to costs. Order accordingly.